William John Market Report 30-07-21
Standard Oil is to the late 19th Century what Big Tech is to the early 21st Century - immoveable objects. William John discusses
William John, Google, Amazon, Facebook, Apple, earnings, monopoly, technology
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William John Market Report 30-07-21

William John Market Report 30-07-21

Category: Reports

COVID-19 has moved populations around the world to digitalised markets. As a result, digital advertising and other digital services have skyrocketed in demand and value. This has been most notably exhibited by the rise of Zoom – a video teleconferencing software program which approximately this time in 2019 had a trading stock price of $102.20 (26/07/19). In a pandemic world today, its stock price stands at $353.93 (23/07/21). This is no coincidence, tripling its value in over two years is no small feat. 

More significantly though, other technology companies seemed to have reaped the rewards of the pandemic era. Apple, Alphabet (Google) and Microsoft all posted their second or third quarter (Q2 or Q3) earnings this week. Observing their net incomes around June since 2018:

Source: William John Analytics, SEC filings and company investor relations

 

All three companies have clearly experienced rapid earnings growth from 2020 to 2021. In fact, Apple, Microsoft and Alphabet June 2021 earnings grew 93%, 44% and 166% respectively relative to June 2020 earnings. 

With Apple setting a new June quarter earnings record for the company and all three companies beating Wall Street’s expectations, what has fuelled the surge in earnings for the world’s largest companies? 

Much like the rapid rise of Zoom, digitalisation has become the cornerstone of a functioning economy through lockdowns and government restrictions over the past 16 to 18 months. Moreover, leadership teams of all three businesses feel that this “digitalisation effect” of personal and professional livelihoods is here to stay beyond the pandemic era, likely sustaining similar earnings in quarters to come (although they concede maybe not growing as fast as currently being observed) – a point remarked upon when discussing the equity indices a few weeks ago. 

Tackling “big tech” earnings from a different angle, however, their businesses continue to thrive in an era where someone’s privacy is unknown, taxes are non-existent, and they absolutely dominate and crush their opposition – or acquire it. 

Legislation has been brought in to tackle the former, with the EU’s General Data Protection Regulation (GDPR) being introduced in 2016 and taxes are currently being addressed in G7/G20 talks about a globalised taxed system tackling multinationals (although exemptions on US businesses are already being negotiated in return for an exemption on the City of London, for example). 

Monopoly, on the other hand, is yet to be formally addressed or probed. Each company, along with their big tech counterparts Facebook and Amazon, enjoy profit margins of around 20% at least meaning for every $1 they generate, they are capturing at least 20 cents. To put into perspective their dominance for example, Apple’s “Wearables, Home and Accessories” business which accounts for sales of Airpods, Apple Watches, Apple TV, Beats products and some others can be evaluated with respect to Apple’s tech colleagues:

 

Source: William John Analytics, SEC filings and company investor relations

 

As observed, Apple Wearables alone account for more annual revenue than companies such as Netflix, Spotify, and Twitter. Furthermore, iPhone sales generated more revenue in 2020 at $137 billion than the (nominal) national incomes of countries including Morocco, Kuwait, and Kenya (based on IMF estimates). 

Therefore, with the power of these businesses evident in their financial statements, they appear to be the immoveable objects of today’s World Economy – the Standard Oil of the late 19th century is now the GAFA (Google, Amazon, Facebook, Apple) of the early 21st century. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.